Take this advice: Get advisors
When we co-wrote a series of articles in 2007 on a killer growth tool for small business, College Pro founder Greg Clark and I called it “Success Insurance.” Clark had experienced in his career, and I had seen throughout my years in business journalism, the power of creating advisory boards composed of smart, experienced business people who have fought in the trenches you’re in now, and are eager to share their experience.
Now, the Business Development Bank of Canada has produced a report on 1,000 entrepreneurs that confirms the conclusions Clark and I reached: that advisory boards can make the difference in your business.
The BDC’s findings are eye-opening. Sales at small and medium-sized Canadian businesses grew an average of 67% in the three years after they created an advisory board. SMBs with advisory boards were found to be 18% more productive than those without. Nearly six in 10 said their advisory board contributed significantly to their success — especially in vision, innovation, risk management and profitability.
Yet — and here’s the rub — just 6% of SMBs have an advisory board. (Another 19% have a board of directors, which accomplishes many of the same ends. But 76% have neither.)
Why don’t more entrepreneurs use advisory boards to inform their decision-making and increase their business’s chance of success? BDC’s research says 57% of entrepreneurs think it will take too much work and time.
Clark and I interpreted business owners’ reluctance differently: We concluded they just don’t know where to start. They don’t know how much a board will cost, they don’t know who should sit on it, and they don’t know how to run it. Given the choice between working through all those theory-related tasks or doing something more direct to build their business, such as calling a customer, it should be no surprise that most entrepreneurs choose the more familiar path.
Our research found that entrepreneurs benefited from all kinds of advisory structures. Some have a list of informal advisors they call from time to time. Others form a more structured group that never meets — they just respond to occasional emails. Some go all the way in the other direction, creating a formal group with balanced backgrounds that meets quarterly, with formal agendas, and an almost director-like authority to call the CEO to account.
We found all of these structures create significant benefits. As you might expect, we discovered that the more formal and empowered your board is, the more benefit you will derive. But the important thing is to start. Clark and I called this process BYOB: Build Your Own Board. Once you launch it, and engage with your advisers, your board will evolve the way it should.
The BDC survey sheds only a little light on board formation. It says the average board consists of five people. The skills most frequently recruited are accounting or finance (65%), sales and marketing (51%), human resources (43%), industry expertise (38%), and operational competencies (37%). In 56% of cases, advisers are recruited through the company’s contact network. Some 18% of CEOs with advisory boards said they would have liked help recruiting members. Just 43% of respondents said they pay their advisory board members.
Back in 2009, I tried to shed a little more light on this process. Working with Ajmer Mehmi, then an MBA student at Vancouver Island University in Nanaimo, I conducted a formal study of best practices in recruiting advisory boards. The goal: to eliminate the excuses.
We sent a formal survey to a list of high-performance companies provided by Profit magazine. We received detailed responses from a little more than 30 companies with advisory boards. Here is some of what we learned:
❚Two-thirds of the CEOs recommended mining personal networks for quality advisers. “Friends, colleagues, clients and business partners can all be possible advisors,” said one respondent. No one used search firms or cold calls to find advisers.
❚Close to 60% said professional groups and industry associations are excellent places to find advisors.
❚Some 40% of CEOs said former colleagues often make strong advisers. “Go with people you know,” suggested one. “My best results came from former peers or colleagues.” A full 83% said they believe that “personality” and their “personal relationship” with a candidate are important factors.
❚A third of business leaders identified personal referrals as a strong source of advisors. “I lean heavily toward personal networks and referrals,” one CEO said. “They have a better understanding of who I am as a person, and the ethics/ overall atmosphere I want to create.”
❚Some 88% of respondents ranked industry experience, reputation and “successful track record in entrepreneuring” as important attributes of potential advisers.
❚Think big. As one respondent said, “Don’t shy away from seeking persons who are extremely credible in their field and wiser than you are.”
❚Don’t forget the big picture: 83% of respondents identified “board chemistry” as a significant issue.
The BDC is to be credited for rekindling interest in advisory boards. They can make a big difference, but only if you overcome the inertia and uncertainty and just get started. When Clark and I asked one entrepreneur if he had any regrets, he said yes: “I only wish we had started our advisory board earlier.”